Discounting disentangled

Moritz Drupp, Mark Charles Freeman, Ben Groom, Frikk Nesje

Research output: Contribution to journalArticlepeer-review

Abstract

The economic values of investing in long-term public projects are highly sensitive to the social discount rate (SDR). We surveyed over 200 experts to disentangle disagreement on the risk-free SDR into its component parts, including pure time preference, the wealth effect, and return to capital. We show that the majority of experts do not follow the simple Ramsey Rule, a widely used theoretical discounting framework, when recommending SDRs. Despite disagreement on discounting procedures and point values, we obtain a surprising degree of consensus among experts, with more than three-quarters finding the median risk-free SDR of 2 percent acceptable.

Original languageEnglish
Pages (from-to)109-134
Number of pages26
JournalAmerican Economic Journal: Economic Policy
Volume10
Issue number4
Early online date1 Apr 2018
DOIs
Publication statusPublished - 1 Nov 2018

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